New Product Treds:
Not Your Average Joe

JUNE 2004--The mission at Trader Joe's (TJ's, Monrovia, Calif.), is to provide customers the best food and beverage values to be found anywhere, and to provide nutritional and background information about its products to customers so that their buying decision becomes a great experience.

The original store was founded in 1958 by Joe Coulombe, who opened a chain of convenience stores named after him in Southern California. In 1979, he sold his chain to the Germany-based Albrecht Family, responsible for building a $27 billion grocery empire through its discount retailer, Aldi (Batavia, Ill.). There are 4,000 Aldi supermarkets in 11 countries, including 700 in the U.S. The Albrechts also own 11% of the stock in Albertson's (Boise, Idaho) grocery chain, and sales hit $36 billion in 2002.

The Trader Joe's Style

Some of the larger grocery retailers consider Trader Joe's an “off-beat” retailer that sells gourmet private label goods at very low prices. The average size of a TJ's is 10,000 sq. ft., which is usually located in a free-standing store or in a strip retail center. About 3,000 products are carried in each store, a number well below the 25,000 products typically offered in an average 60,000 sq. ft. American grocery store.

Pat St. John, the company's vice president of marketing, says, “We keep our promise, which means continuing to deliver interesting, high-quality foods at very good prices. Trader Joe's brand isn't about the products; it's about the customer experience. Our employees are friendly and very knowledgeable about the products.”

The typical TJ's shopper profiles are serious “foodies,” gourmet cooks, college students, and health nuts. They draw the Whole Foods Markets (Austin, Texas) to Costco (Issaquah, Wash.) types.

Each store has the freedom to display the products it chooses. The company does not allow suppliers to buy shelf space (slotting fees) or to come to tastings. Once a product is accepted and placed in the stores, the customers become the judges. The sales staff often sends e-mails to the company's buyers to tell them what's a hit or miss.

Trader Joe's cuts costs by having its buyers go directly to the suppliers, not the middlemen. The chain does not carry common items such as bleach, detergent and general brand names of flour, sugar, and soft drinks. If TJ's cannot price an item at a lower figure than local supermarkets, the stores won't carry it. About 80% of the products sold in TJ's are manufactured under private label names such as Trader Joe's, Trader Ming, Trader Jacques, Trader Giotto and Trader Darwin. Creating its own brands under its own labels is another effective way to cut company costs. The loyalty of the customer base that shops at TJ's for the private label products was a key factor in the company recently winning an award at the 18th Annual Salute to Excellent Awards sponsored by the Private Label Manufacturers Association (PLMA, New York).

About 20% of Trader Joe's suppliers (co-packers) are located overseas and the diversity of the products helps support the chain's creative marketing style. From one aisle to another, the shelves are stocked with gourmet foods such as imported unique shapes and flavors of pastas from Italy to a high-end, restaurant-quality crème brulee dessert made in France and shipped frozen to its stores. Around 20 new products are added weekly, to replace the old ones that did not sell well.

It has been hard for others to replicate TJ's concepts because, over the years, the retailer has created thousands of great relationships with product manufacturers all over the world. To address regional tastes in the U.S., taste panels within the company test products on each coast.

Staying Ahead of the Trend

Around 30% of the products sold in Trader Joe's are organic. But they cost 25%-30% less than the items found at Whole Foods, Wild Oats (Boulder, Colo.) and other grocers known for selling mostly organic goods. Since October 2002, the USDA (Washington) has put specifics in place as to what foods legally can be named organic. Every manufacturing plant that produces organic products must be in compliance with the USDA National Organic Program (NOP).

Organic products sold in the U.S. fall into one of two categories: 1) Organic: A product that is made with at least 95% organic ingredients (excluding water and salt); or 2) Made with Organic Ingredients: A product that is made with 70%-95% organic ingredients. The label will state which ingredients are organic.

TJ's organic product categories include bakery products, beverages, candy, cereals, coffee, dairy, fresh and refrigerated items, dried fruits and nuts, frozen, general grocery, snacks and produce. Other product trends found in Trader Joe's include low-carb, soy-based and kosher.

Like No Other Grocery Chain

If you are an upbeat and outgoing person who is motivated by challenges, who enjoys working with an educated, exciting team, and who has a good sense of humor and a strong customer orientation, Trader Joe's might be right for you. Clerks earn an average of $47,000 a year, including bonus and retirement contributions plus medical benefits. Assistant store managers average $94,000, while store managers can make $132,000. All these figures are well above the average of national grocery chain salaries.

The company stresses leadership training and a collaborative work environment. All employees wear Hawaiian shirts. In the company language, managers are called captains, and employees are called crew.

There are 214 stores nationwide, and the chain is still growing. It has been reported that TJ's plans to open five Chicago-area stores within the next year, as well as new stores in the New York City area. The company does not disclose its sales revenue. However, many business analysts estimate Trader Joe's to be worth about $2 billion annually. The company does not advertise or use coupons. It gets the word out through a quarterly grocery flyer called the Fearless Flyer, sent via mail to neighborhoods surrounding its stores. They also send out e-mails announcing new product arrivals and recipes to subscribers.

Competition is Coming

Trader Joe's has enjoyed success while maintaining its identity. It has appealed to consumers with its quirky sense of humor and low prices. However, competitors are eager to expand into the organic and natural foods markets.

For example, Cincinnati-based Kroger has disclosed that private label now makes up 31% of its sales, up 0.4% from last year. Wal-Mart (Bentonville, Ark.), the country's largest grocery retailer, has opened a chain of smaller stores, called neighborhood grocery stores. The stand-alone grocery stores are only 45,000 sq. ft., compared to 200,000-sq.-ft. Wal-Mart Supercenters. Currently, there are 56 neighborhood grocery stores open, but the company plans to open an additional 30 units by the end of 2004. These smaller, scale-down stores contain only fresh produce, canned goods, a deli and a pharmacy.

Wal-Mart has been very successful in winning and keeping customers happy with its private label program. There are 1,475 products under its “Great Value” grocery line, compared to 194 just two years ago. The private label products are not the same as Trader Joe's, but very similar to those offered by large manufacturers such as Kraft Foods (Glenview, Ill.), Del Monte (Coral Gables, Fla.), ConAgra (Omaha, Neb.), Pillsbury (General Mills, Minneapolis) and others.

Some industry experts believe that Wal-Mart wants to come after high-end shoppers. In fact, they already have plans to start competing with the coffee giant Starbuck's (Seattle). Wal-Mart wants to go into the gourmet specialty coffee business, by opening up coffee bars within its stores and offering high-quality retail coffee products to its customers--at bargain prices.